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News and Media

14 January 2015

Pensions Perspective: If I have protected status, why shouldn't I join my new employers group life scheme?

I HAVE RECENTLY JOINED A NEW EMPLOYER. THEY HAVE A GOOD REMUNERATION PACKAGE INCLUDING PENSION SCHEME, GROUP DEATH IN SERVICE, GROUP PERMANENT HEALTH INSURANCE AND A PRIVATE HEALTHCARE SCHEME. MY NEW EMPLOYER WAS OFFERING A 7.5% CONTRIBUTION TO PENSION, BUT BECAUSE I HAVE FIXED PROTECTION 2014 (FP14), I KNEW THAT I COULD NOT JOIN THE COMPANY PENSION SCHEME AND THIS WAS REFLECTED IN MY REMUNERATION PACKAGE. HOWEVER, THE HR DEPARTMENT HAS PICKED UP ON MY PROTECTION STATUS AND HAS ASKED ME TO SEEK ADVICE BEFORE THEY INCLUDE ME IN THE GROUP DEATH IN SERVICE SCHEME. WHY?

The benefits under the existing group life scheme are held in a registered pension scheme. As such, any payment from the group life scheme in the event of your death forms part of your lifetime allowance.

While you are aware that pension contributions can invalidate your fixed protection status, FP14 may also be lost if any benefit accrual arises under a registered pension scheme or if an individual starts a new arrangement under a registered pension scheme.

Group death in service arrangements also fall into this, so while HM Revenue & Customs has confirmed that maintaining membership of an existing defined benefit death in service scheme will not be deemed to be a benefit accrual, FP14 protection will be lost if you join a new group death in service scheme after 6 April 2014.

One option may be to speak to your employer regarding the possibility of using an excepted life policy, which takes the benefits out of the registered pension environment. While you can take out an individual policy, in most cases these run alongside the existing registered group life assurance policy with the same unit rate and free cover limit. Moreover, the contribution does not count as a relevant accrual, and any lump sum payment in the event of death will not form part of the lifetime allowance.

They do have their own tax considerations, but excepted life policies are one solution for clients with potential protection issues.

Pension Perspective is a weekly feature from City Trustees, covering questions that our experienced sales and technical teams have received from advisers. The Q&A covers a range of subjects including property, pension contributions, protection, auto-enrolment and more.

City Trustees operates a free technical helpline for advisers for support with pension challenges. Tel: 0116 240 8731 or email: technicalhelp@citytrustees.co.uk.